FTX, the trading platform founded by CEO Sam Bankman-Fried, has agreed to purchase BlockFi for up to $240 million, along with providing a $400 million credit facility. FTX had previously provided BlockFi access to a $250 million credit line when things started to go sideways.
The deal is subject to approval by shareholders.
During the past few days, rumblings of a deal between the two firms were ubiquitous. BlockFi has been hit by rapidly declining crypto valuations that have pummeled the entire market.
According to a series of Tweets by Zac Prince, CEO and founder of BlockFi, they have signed a definitive agreement for the sale for a total possible value of $680 million.
While far above the rumors of a $25 million fire sale, the total value is a steep haircut from BlockFi’s most recent valuation of over $4 billion, representing a significant hit for equity holders.
Prince shared the series of events that compelled the company to quickly find a white knight to bail them out. He stated:
Crypto market volatility, particularly market events related to Celsius and 3AC, had a negative impact on BlockFi. The Celsius news on June 12th started an uptick in client withdrawals from BlockFi’s platform despite us having no exposure to them.
In the same week, 3AC news spread further fear in the market. While we were one of the first to fully accelerate our overcollateralized loan to 3AC, as well as liquidate and hedge all collateral, we did experience ~$80M in losses, which is a fraction of losses reported by others.
This represents the full extent of the impact to BlockFi from 3AC. We have no further exposure and the limited losses we did experience will be absorbed by BlockFi with no impact to client funds.
Our 3AC losses will be part of 3AC’s ongoing bankruptcy case(s) so more info will surely come out as those cases proceed.
Prince added that they fundamentally believe in protecting client funds. Prince stated they have yet to tap into the new credit line.
Sam Bankman-Fried responded to Prince’s Tweets stating they are very excited to be working with BlockFi.
Really excited to work with @BlockFi https://t.co/9pehsFYFxh
— SBF (@SBF_FTX) July 1, 2022
FTX US President Brett Harrison added they are looking forward to working further with @BlockFiZac and the @BlockFi
team!
“We’re excited [to] help bolster BlockFi’s business and work together on paths towards strategic partnership!”
BlockFi made its name as a top yield provider in the crypto sector. The company encountered a serious challenge when the Securities and Exchange Comission pursued an enforcement action over their BlockFi Interest Account (BIA) offering, providing access to US investors. The SEC believed these were securities offerings. In the end, BlockFi settled with a $100 million penalty, without admitting or denying the SEC’s findings, while curtailing the service in the US. According to their website, the service is still available for individuals able to commit at least $3 million USD in loaned assets.
In recent weeks, fears of crypto contagion have gripped digital asset markets as multiple platforms have shuttered operations due to counterparty risk that went south. Sam Bankman-Fried has emerged as a potential savior for certain platforms viewing the rapid decline in value of crypto firms as an opportunity to increase his portfolio of digital asset entities.